Risk-free interest rates

Finance

NBER Working Paper

van Binsbergen J H; Diamond W; Grotteria M

Marco Grotteria

2018

We estimate risk-free interest rates unaffected by convenience yields on safe assets. We infer them from risky asset prices without relying on any specific model of risk. We obtain a term structure of convenience yields with maturities up to 2.5 years at a minutely frequency. The convenience yield on treasuries equals about 40 basis points, is larger below 3 months maturity, and quadruples during the financial crisis. In high-frequency event studies, conventional and unconventional monetary stimulus reduce convenience yields, particularly during the crisis. We further study convenience-yield-free CIP deviations, and we show significant bond return predictability related to convenience yields

Demand for safe assets; Convenience yield; Quantitative easing; Monetary policy

26138.

NBER Working Paper

No

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